Andreessen Horowitz Part I

Summary Notes


In this episode, Ben Gilbert and David Rosenthal, co-founders of Pioneer Square Labs and angel investors, respectively, delve into the remarkable journey of Andreessen Horowitz, a firm that revolutionized the venture capital ecosystem. They explore the origins of the web browser with the creation of Mosaic, the rise and tumultuous path of Netscape, and the ambitious yet premature cloud venture Loudcloud. The episode highlights the duo's experiences of soaring success, stark failures, and their eventual pivot to software with Opsware, which they sold to HP for $1.6 billion. Their story is punctuated by a contentious relationship with Benchmark Capital and an alliance with Michael Ovitz, setting the stage for their venture into establishing their own VC firm, Andreessen Horowitz.

Summary Notes

Introduction to Season Nine, Episode One of Acquired

  • The hosts, Ben Gilbert and David Rosenthal, discuss plans for the episode.
  • They express enthusiasm for playing the "Who Got the Truth?" song at the end of the episode.
  • They introduce themselves and their professional backgrounds.

"What do you think about playing the full who got the truth? Song at the end?" "At the end? I like that." "Yeah, it's so good."

The exchange indicates agreement on using the song, highlighting the hosts' collaborative approach to the podcast's creative elements.

The Story of Andreessen Horowitz

  • The episode aims to tell the complete story of the firm Andreessen Horowitz.
  • It involves exploring the history of the web browser, the creation of Mosaic, and the founding of Netscape.
  • The narrative will also cover the journeys of Marc Andreessen and Ben Horowitz before founding the firm.

"Well, listeners, David and I decided to open this season with the complete story of the firm that totally upended the entire venture capital ecosystem a decade ago, Andreessen Horowitz."

This quote outlines the episode's focus on Andreessen Horowitz and its impact on the venture capital landscape, setting the stage for an in-depth exploration of the firm's history and influence.

Research and Preparation for the Episode

  • David Rosenthal mentions that they will discuss details that co-host Ben Gilbert is not aware of.
  • Ben Gilbert expresses excitement to learn from David along with the audience.
  • They touch on the idea of a two-part episode to cover the extensive history.

"Well, this is great. This is the first time I've literally not opened your notes at all. Like, normally we don't trade notes, but I have no idea what you've prepared."

Ben Gilbert's statement reveals the spontaneous and dynamic nature of their collaboration, emphasizing the depth of research that goes into each episode.

Understanding the Influence of Marc Andreessen and Ben Horowitz

  • The hosts discuss the importance of understanding the worldviews of Marc Andreessen and Ben Horowitz.
  • They suggest that the creation of Andreessen Horowitz in 2009 shaped the startup ecosystem.
  • They reflect on how the history of the firm's founders has influenced their own investor psychology.

"And I think for all of us working in a startup ecosystem that was so shaped by the 2009 creation of the firm Andreeason Horowitz, I think it's paramount to understand the things that shaped them because they have shaped us all."

This quote emphasizes the significance of understanding the backgrounds and experiences of influential figures like Andreessen and Horowitz, as their decisions and philosophies have had a profound effect on the broader startup and investment community.

Community Engagement and Subscriber Content

  • The hosts invite listeners to join their Slack community for discussions on tech news.
  • They promote their limited partner program, which offers exclusive interviews and content on company building topics.

"One is our slack. There is awesome discussion that takes place on not just our episodes but also the tech news the day going on there."

The hosts encourage listener engagement through their Slack community, showcasing their commitment to fostering a space for insightful discussions among tech enthusiasts.

Sponsorship from Pilot

  • The episode features a sponsorship from Pilot, a company that provides accounting, tax, and bookkeeping services for startups.
  • Pilot is praised for allowing companies to focus on their core product and customers by handling financial operations.

"Our next sponsor for this episode is one of our favorite companies and longtime acquired partner pilot for startups and growth companies of all kinds."

This quote introduces Pilot as a trusted partner for the podcast, highlighting the value they provide to startups by managing their financial needs efficiently.

Disclaimer and Introduction to the Historical Narrative

  • The hosts typically include a disclaimer about investment advice, but note that the episode's historical content is less relevant for current investing.
  • David Rosenthal mentions a new investing vehicle he's working on with Nat Manning of Kettle.
  • They acknowledge that some general partners at Andreessen Horowitz are LPs in this new vehicle.

"But this episode, all this stuff's pretty old. Like, good luck investing in any of this defunct technology."

The disclaimer humorously points out the historical nature of the episode's content, implying that the information presented is more educational than actionable for investment purposes.

Ben Horowitz's Family Background and Early Life

  • Ben Horowitz was born in London, England, in 1966 to American expats.
  • His father, David Horowitz, was a radical political activist involved with prominent figures and movements of the 1960s.
  • The family's return to America and involvement with the Black Panthers is discussed.

"So the family already had either one or two children. I'm not sure if Ben is the second child or third child, but nonetheless, in 1966, Benjamin Abraham Horowitz is born."

This quote introduces listeners to Ben Horowitz's early life, setting the stage for understanding how his upbringing may have influenced his later career and contributions to the tech industry.

The Influence of the Counterculture on Ben Horowitz

  • David Horowitz's transition from a leftist activist to a conservative thinker is highlighted.
  • Despite political differences, Ben and David Horowitz maintain a strong relationship.
  • Ben's exposure to the counterculture and political activism is seen as influential in his later work.

"And for David, he does a complete 180 and ends up becoming an arch conservativist."

This quote illustrates the dramatic ideological shift experienced by Ben Horowitz's father, which may have played a role in shaping Ben's own perspectives and approach to business.

Ben Horowitz's Education and Early Career

  • Ben Horowitz pursued computer science at Columbia and UCLA.
  • He interned at Silicon Graphics and worked at Lotus before learning about the Mosaic web browser.
  • His interest in the emerging field of computer technology is established.

"He ends up going to Columbia in New York for undergrad and studying computer science there."

The quote marks the beginning of Ben Horowitz's foray into computer science, which would later become the foundation for his career in technology and venture capital.

Marc Andreessen's Early Life and Introduction to Computing

  • Marc Andreessen grew up in a small town in Wisconsin with a non-traditional background.
  • His family's modest means and his desire to escape his small-town roots are mentioned.
  • Andreessen's drive to pursue computer science and his work at NCSA are highlighted.

"They were scandinavian, hardcore, very self denying people who go through life never expecting to be happy."

This quote provides insight into Marc Andreessen's family environment, which contrasts with the ambitious and transformative career he would later pursue in the tech industry.

The Creation of Mosaic and the Early Internet

  • Marc Andreessen and Eric Bina developed the Mosaic web browser at NCSA.
  • The browser's release to the public in 1993 marked a significant shift in Internet accessibility.
  • Mosaic's non-open source status is noted, as is its rapid adoption by users.

"In 1994, Wired would write, the second phase of the revolution has begun."

The quote from Wired magazine underscores the revolutionary impact of Mosaic on the digital landscape, signaling the beginning of widespread Internet use.

The Growth and Impact of Mosaic

  • Mosaic's user base grew from a few dozen to a million in a short span.
  • The browser's success demonstrated the potential for mass-market Internet applications.
  • Marc Andreessen's role in democratizing the Internet is established.

"By spring. So two months later after that it had 10,000 users. And then nine months later in early 94, it has a million users."

This quote highlights the explosive growth of Mosaic, illustrating Marc Andreessen's early success in creating products with strong product-market fit.

Early Career and Silicon Valley Sentiments

  • Mark Andreessen graduates from the University of Illinois in 1993 with Mosaic's user adoption growing.
  • Mark moves to Silicon Valley, feeling like he missed the prime era of computing innovation.
  • Mark believes the PC era is over and is initially skeptical about the potential of the Internet.

"When I got to the valley in 93 and 94, I thought I had missed the whole thing." This quote highlights Mark's initial perception that he had arrived too late in Silicon Valley to make a significant impact, as he believed the great computing companies had already been established.

Perception of Missed Opportunities

  • David Rosenthal relates to Mark's feelings, reflecting on his own experience in 2014.
  • Ben Gilbert shares a similar sentiment regarding the App Store and the emergence of new technologies like machine learning and crypto.
  • The concept that every generation feels like they've missed out is a recurring theme in Silicon Valley.

"I remember graduating from GSB in 2014 and commiserating with all my friends, being like, we missed it. It's over." This quote captures the common sentiment among tech industry professionals that they have arrived too late to capitalize on the latest innovation or market opportunity.

Moore's Law and Technological Progress

  • Discussion of Moore's law's impact on the tech industry's growth.
  • Even when physical limits are reached, the industry finds ways to maintain the spirit of Moore's law.
  • Computing becomes increasingly affordable, leading to new possibilities in software.

"It's always going to be bigger as long as Moore's law continues." This quote underscores the belief that as long as technological progress continues, in line with Moore's law, the opportunities in computing and technology will continue to expand.

The Beginnings of Netscape

  • Mark Andreessen starts working at Enterprise Integration Technologies after graduation.
  • Mosaic's adoption increases while Mark is working a "no-name job."
  • Jim Clark, founder of Silicon Graphics, seeks out Mark to start a new venture.

"Let's go do this." This quote represents Mark's decision to leave his job and partner with Jim Clark to commercialize the Mosaic browser, leading to the founding of Netscape.

Netscape's Formation and Challenges

  • Netscape Communications Corporation is founded to commercialize Mosaic.
  • The company faces legal threats from NCSA over the use of the Mosaic name.
  • Jim Clark invests $4 million of his own money to finance Netscape.

"We could just go hire all them and recreate it and commercialize it." This quote explains Mark's plan to recruit his former colleagues to rebuild and commercialize a new web browser, which would become Netscape.

The Rise of Netscape and the Browser Market

  • Netscape achieves an 80% market share of web browsers by August 1995.
  • The company's rapid growth and market dominance lead to an initial public offering (IPO).

"We've successfully killed Mosaic at this point." This quote reflects the success of Netscape in dominating the browser market, effectively surpassing the earlier Mosaic browser that Mark had helped create.

Netscape's IPO and Impact on the Tech Industry

  • Netscape's IPO in 1995 becomes a cultural and financial milestone.
  • The IPO kicks off the dot-com bubble and shifts perceptions about company valuations.

"The stock opens at $75 a share." This quote captures the incredible demand and valuation jump on Netscape's IPO day, with the stock price opening much higher than anticipated.

The Browser Wars and Microsoft's Entry

  • Microsoft views Netscape as a strategic threat and decides to compete.
  • Microsoft licenses the Mosaic code from Spyglass Inc. to develop Internet Explorer.

"We are getting killed, killed, killed out there." This quote, from an email by Mark Andreessen, conveys the urgency and competitive pressure Netscape felt as Microsoft entered the browser market with Internet Explorer.

Netscape's Strategic Shift and Internal Tensions

  • With Microsoft offering a free browser, Netscape focuses on enterprise server products.
  • Internal tensions arise, highlighted by a heated email exchange between Mark Andreessen and Ben Horowitz.

"Next time, do the effing interview yourself. F you, Mark." This quote from an email exchange demonstrates the high-stress environment and internal conflicts within Netscape as they navigated the competitive landscape.

The Legacy of Netscape and the Tech Industry

  • Netscape's story is emblematic of the rapid changes and competitive dynamics in the tech industry.
  • The company's experiences illustrate key themes of innovation, missed opportunities, and the relentless pace of technological progress.

"This is why I should not run a company." This quote from Mark Andreessen reflects on his own leadership style and the challenges of managing a fast-growing tech company amid fierce competition.

Development of Mobile App Ad Product

  • Facebook developed a mobile app ad product that became a significant part of their business.
  • The product engineering tools at Facebook allowed for continuous experimentation and feature rollout to billions of users.

"Become a huge part of their business. He also had a front row seat to all of the incredible product engineering tools that let Facebook continuously experiment and roll out product features to billions of users around the world."

This quote explains the significance of Facebook's mobile app ad product and the advanced product engineering tools that facilitated its success.

Introduction to Statsig

  • Statsig is a feature management and experimentation platform inspired by Facebook's product development tools.
  • It helps product teams to ship features faster, automate A/B testing, and measure the impact of each feature on core business metrics.
  • Statsig provides visualizations and a powerful stats engine for real-time product observability.

"So now Statsig is the modern version of that promise and available to all companies building great products Statsig is a feature management and experimentation platform that helps product teams ship faster, automate a b testing and see the impact every feature is having on the core business metrics."

This quote describes Statsig as a modern tool that embodies the capabilities initially developed by Facebook, now available to all product teams for efficient feature management and experimentation.

Statsig's Capabilities and Customer Base

  • Statsig allows for data-driven decisions, testing with different user groups, and statistically accurate reporting.
  • Notable customers include Notion, Brex, OpenAI, Flipkart, Figma, Microsoft, Cruise automation, Plex, Vercel, and others.
  • Statsig is particularly useful for rolling out and testing AI product features, as demonstrated by Notion's use of the platform.

"Statsig lets you make actual data-driven decisions about product changes, test them with different user groups around the world, and get statistically accurate reporting on the impact."

This quote highlights the data-driven approach enabled by Statsig, allowing companies to make informed decisions about product changes and measure their effects accurately.

Integration with Data Warehouses and Ease of Adoption

  • Statsig can ingest data from data warehouses, making it compatible with a company's existing data storage solutions.
  • The platform is easy to adopt, requiring no migration from current feature flagging solutions.

"They can now ingest data from data warehouses. So it works with your company's data wherever it's stored."

This quote emphasizes Statsig's flexibility and ease of integration with existing data storage solutions, facilitating a smooth adoption process for companies.

Netscape's Rise and Fall

  • Netscape had impressive revenue growth from 1995 to 1997 but struggled after Microsoft bundled its own browser with Windows 95.
  • Netscape's stock peaked but then declined steadily, leading to its sale to AOL for $4.2 billion in an all-stock deal.
  • Mark Andreessen became CTO of AOL post-acquisition but left before the AOL-Time Warner merger.

"It was for real. But the stock, once Microsoft strategy bundling strategy became obvious here in December 95, I think, which is when they announced that it was going to be bundled into all copies of Windows 95. Going forward, the stock had peaked then at $171 a share, which is even hugely up from where the IPO was. But it never got above that."

This quote explains the impact of Microsoft's strategy on Netscape's stock performance, highlighting the challenges Netscape faced following Microsoft's aggressive market entry.

AOL's Acquisition of Netscape

  • AOL acquired Netscape for strategic reasons, including leveraging Netscape's technology and talent.
  • The Netscape brand was retained by AOL, later acquired by Verizon, while the technology was sold to Facebook.
  • The acquisition provided AOL with a bargaining chip against Microsoft and access to Netscape's web properties.

"So that's one explanation. The other would be basically to get a bargaining chip against Microsoft in case it became relevant for them to try and be less dependent on, ie, to have a browser of their own that they could bundle in and distribute."

This quote discusses AOL's motivations for acquiring Netscape, suggesting strategic considerations related to competition with Microsoft and the value of Netscape's web properties.

The Birth and Evolution of Mozilla

  • Netscape open-sourced its browser code before the AOL acquisition, leading to the creation of the Mozilla Foundation.
  • Mozilla stewarded the open-source code, which led to the development of Firefox.
  • The browser lineage and user agent strings reflect the shared history of Netscape, Mozilla, and other browsers.

"So I didn't realize this actually happened before the AOL acquisition. They open sourced in 1998, I believe. But yeah, you're right. Before AOL they open sourced all the browser code."

This quote details the timeline of Netscape's decision to open-source its browser code, which preceded the AOL acquisition and set the stage for the development of Firefox.

Loudcloud's Founding and Venture Capital Dynamics

  • Ben Horowitz and his team saw an opportunity to provide cloud infrastructure services to non-tech companies.
  • They founded Loudcloud, embracing the cloud concept, and faced significant challenges in raising venture capital.
  • The relationship with Benchmark Capital was strained due to disagreements over valuation and investment terms.

"So immediately they want to get Mark involved, of course. Like, who wouldn't want Mark Andreessen involved in something like this? Mark totally gets it."

This quote discusses the initial excitement around Loudcloud's founding and the desire to involve Mark Andreessen due to his reputation and expertise.

Tensions Between Loudcloud Leadership and Benchmark Capital

  • Benchmark Capital's actions during Loudcloud's funding created friction with Ben Horowitz and Mark Andreessen.
  • The experiences with Benchmark influenced the philosophy of Andreessen Horowitz, positioning themselves as the "anti-Benchmark."
  • The drama between the firms increased their public profiles and contributed to the venture capital landscape.

"We were always the anti benchmark. Our design was not to do what they did."

This quote from Ben Horowitz reflects on the founding principles of Andreessen Horowitz and their deliberate differentiation from Benchmark Capital's approach.

Loudcloud's Public Offering and Struggles

  • Loudcloud went public in a challenging environment, with its stock price plummeting soon after the IPO.
  • The company faced a cash crunch due to the bursting of the dot-com bubble and the resulting decrease in demand for its services.
  • Loudcloud's infrastructure business was eventually sold to EDS, marking a significant downsize from its peak valuation.

"So in March of 2001, they actually go public at $6 a share. And the Wall Street Journal runs a piece leading up to the IPO where they have, it's called the IPO from hell."

This quote captures the dire circumstances under which Loudcloud went public, highlighting the unfavorable market conditions and the company's subsequent challenges.

Company Liquidation and Pivot to Software

  • Loudcloud liquidated their server business for $0.10 on the dollar when going public.
  • They built an internal tool for server provisioning, which they decided to sell as a software product.
  • EDS showed interest in the software product, agreeing to a $20 million per year contract.
  • The company laid off most of its staff and restarted as a software firm focused on data center server automation.

"So $0.10 on the dollar is what they're liquidating the server business for." "They decide, hey, we've got this tool that we've built internally to help us provision the servers that we're racking in our data centers."

The quotes explain the financial situation of Loudcloud during their pivot and their decision to leverage internal technology to survive financially.

Challenges and Rebuilding

  • The internal tool lacked a user interface (UI) and was not customer-ready.
  • The company's stock dropped to $0.35, valuing the company at half of its cash reserves despite having a solid contract.
  • They rebuilt the company, and five years later, HP acquired it for $1.6 billion.

"The tool that they built, which is so great, it has no UI, and it is called the jive and is entirely pimp themed." "The stock craters to $0.35, which is a $28 million market cap."

These quotes describe the initial state of the tool and the financial crisis faced by the company, setting the stage for their remarkable turnaround.

Market Misconceptions and Founding Thesis

  • Ben Horowitz's experience with Opsware led to the belief that markets are efficient at reaching conclusions but not at finding the truth.
  • This experience influenced the founding thesis of Andreessen Horowitz, which focused on the potential of the internet and software.

"If I'd learned anything, it was that conventional wisdom had nothing to do with the truth, and that the efficient market hypothesis was deceptive."

The quote reflects Horowitz's realization that market perceptions can be flawed, informing his investment philosophy.

Perseverance and Market Timing

  • Early market entry can be detrimental, but survival until the market catches up can lead to success.
  • Being lucky is beneficial, but waiting for luck while staying alive is also a valid strategy.

"It's not good to be in that situation. But if you can just hang on and stay alive until the market can catch up with you, these markets will grow and you can become a big, big player."

The quote emphasizes the importance of perseverance in the face of market timing challenges.

Board Composition and Influences

  • Loudcloud's board included notable figures like Mark Andreessen, Bill Campbell, and Michael Ovitz.
  • Ovitz's involvement with Loudcloud influenced the creation of Andreessen Horowitz, likened to the CAA of venture capital.

"Michael Ovitz. Of course, we're talking about super Hollywood agent, founder of Creative Artist Agency, Michael Ovitz."

The quote highlights the high-profile nature of Loudcloud's board and the impact of Ovitz's participation.

Technical Founders as CEOs

  • Andreessen Horowitz strongly believes in technical founders remaining as CEOs.
  • This belief was solidified by an encounter where Ben Horowitz was asked about hiring a professional CEO and his response to focus on empowering technical founders.

"Should a founding technologist run a mature Mark's answer? He's a brilliant person. He gives these long, philosophical answers to every other question. This one he just answers. Absolutely."

The quote signifies the firm's stance on the role of founding technologists in mature companies.

Angel Investing and Web 2.0

  • During the Web 2.0 era, Mark Andreessen and Ben Horowitz became super angels, investing in companies like Twitter, Facebook, LinkedIn, and Zynga.
  • They embraced Web 2.0 tools, including blogging, to share their thoughts and insights.

"They end up angel investing in companies like Twitter, of course, like Zynga, Facebook, LinkedIn. Like LinkedIn."

This quote outlines the angel investing activities of Andreessen and Horowitz before establishing their venture firm.

Sequoia's Interest in Ben Horowitz

  • Doug Leone from Sequoia Capital expressed interest in understanding how Ben Horowitz turned Loudcloud into a billion-dollar outcome.
  • This interaction potentially aimed at recruiting Horowitz to Sequoia, but it ultimately led to the idea of starting Andreessen Horowitz.

"I want to know how you took a dog of a company and turned it into a billion dollar outcome."

The quote reveals Sequoia's recognition of Horowitz's achievements and the potential recruitment effort.

Founding Andreessen Horowitz

  • The decision to start Andreessen Horowitz was a response to the interest from Sequoia and the desire to create a new type of venture firm.
  • The firm's founding was during a challenging economic climate, but they proceeded with their vision.

"He hangs up with Doug and he shoots Mark an instant message, we ought to start a venture capital firm. And Mark replies, I was thinking the same thing."

The quote captures the moment of decision to establish Andreessen Horowitz, highlighting the alignment between the founders.

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